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691 F.

2d 653

Aida FELICIANO,
v.
RELIANT TOOLING COMPANY, LTD. and Union Special
Corporation,
Sun Alliance and London Insurance, Limited, Appellants.
No. 82-1176.

United States Court of Appeals,


Third Circuit.
Argued Sept. 13, 1982.
Decided Oct. 26, 1982.

Mary L. B. Betts (argued), Shelia H. Marshall, Joseph L. Seiler, III,


LeBoeuf, Lamb, Leiby & MacRae, New York City, Jeremy D. Mishkin,
Montgomery, McCracken, Walker & Rhoads, Philadelphia, Pa., for
appellants.
Fred T. Magaziner (argued), Norbert F. Bergholtz, Philip M. Kruger,
Dechert, Price & Rhoads, Philadelphia, Pa., for appellee.
Before GIBBONS, WEIS and SLOVITER, Circuit Judges.
OPINION OF THE COURT
WEIS, Circuit Judge.

A default judgment was entered against an English insurance company for


failure to answer interrogatories directed to it as garnishee and served on it in
the United Kingdom. The carrier later submitted to the jurisdiction of the
district court to ask that the judgment be opened, but the motion was denied.
We conclude that the company's reasonable doubt about the personal
jurisdiction of the American court demonstrates a lack of bad faith on its part.
That factor, combined with a facially meritorious defense and a lack of
prejudice to the judgment creditor, counsel that the default be opened.
Accordingly, we vacate the judgment of the district court and remand for
proceedings on the merits.

In 1978, plaintiff Feliciano a citizen of Costa Rica brought suit in the Eastern
District of Pennsylvania against Union Special Corporation, incorporated in
Delaware, and Reliant Tooling Company, Ltd., incorporated in the United
Kingdom. Plaintiff sought damages for personal injury sustained in
Pennsylvania allegedly caused by a defective machine that was manufactured
by Reliant and sold by Union. Feliciano's direct claim against Reliant was
dismissed for lack of diversity. However, Union pressed a third-party claim
against Reliant, serving it, as had Feliciano, by registered mail through the
Secretary of the Commonwealth of Pennsylvania. Reliant did not appear in the
litigation or participate in any way.

After trial began, plaintiff and Union settled her claim for $250,000. A few
days later, the district court, on Union's motion, entered a default judgment for
$250,000 on the cross-claim against Reliant. The same day, Union1 filed a
praecipe for a writ of execution directed against Reliant as defendant and
against its liability insurer, Sun Alliance and London Insurance, Ltd., as
garnishee. The writ and interrogatories were served upon Sun in England,
pursuant to the terms of the Convention on the Service Abroad of Judicial and
Extrajudicial Documents in Civil or Commercial Matters, done at the Hague,
November 15, 1965, 20 U.S.T. 361, T.I.A.S. No. 6638.

Within a week of service, Sun's solicitor wrote to counsel for Union and sent a
copy to the clerk of the district court. In the letter, the solicitor said:

5
"(w)e
are puzzled by the form of proceedings. It is unknown in this country for
Garnishee proceedings to be taken against an Insurer where judgment has been
obtained against an Insured.
6 proceedings in the English Courts, no person can be required to answer
In
interrogatories without an order of the Court. The documents do not recite any such
order.
7 clients do not intend to submit to the jurisdiction of the United States District
Our
Court for the Eastern District of Pennsylvania. They do not, however, wish to be
discourteous and we are therefore instructed to outline briefly the reasons why they
are under no obligation to indemnify the Reliant Tooling Co. Ltd. and to indicate the
answers they would have given, had they filed answers to your interrogatories."
8

The solicitor listed the answers, stated that claims similar to those of Feliciano
were excluded from coverage by the policy terms and asserted that the
judgment against Reliant was unenforceable because Reliant had never
submitted to the court's jurisdiction.

Union did not respond to the solicitor's letter, but on April 16, 1981, almost two
months later, moved for entry of a default judgment against Sun for failure to
answer the interrogatories. The motion did not refer in any way to the solicitor's
letter. A copy of the motion was mailed to Reliant, but none was served upon
Sun. On May 4, 1981, the district court entered judgment in favor of Union
against Sun in the amount of $250,000, "together with counsel fees, costs and
interest."

10

Following entry of the judgment, Union obtained writs of execution and


garnishment accompanied by interrogatories directed to three subsidiaries of
Sun and a company owned wholly by one of the subsidiaries.2 All of these
companies have their principal offices in London, England, but have branch
offices in New York and submit annual filings to the Pennsylvania Insurance
Department. After additional extensive interrogatories were served upon the
companies, Sun decided to appear in the district court.

11

In January 1982, Sun asked the court to set aside the May 4, 1981 judgment, to
accept answers to the garnishment interrogatories originally served upon Sun,
and to grant judgment in its favor on the coverage question. In the alternative,
the carrier asked that the judgment against Reliant be set aside and that Sun be
permitted to defend against Union's cross-claim. As part of its motion, Sun
recited the history of the litigation and attached copies of an English barrister's
opinion on the coverage issue as well as the letter of the company solicitor to
Union's counsel. Sun said further that if the coverage issue were decided
adversely to it, the carrier would agree to pay without the necessity of any
foreign proceedings. After briefing by both parties, the district court denied
Sun's motion without findings or opinion.

12

On appeal, Sun contends that the district court abused its discretion in refusing
to set aside the default judgment and particularly in failing to recognize the
interests of international comity. Union argues that, having chosen to allow the
default to be taken against it, Sun should not be heard to complain at this point.

13

The Federal Rules of Civil Procedure do not set out detailed directions for
execution on civil judgments. Instead, Rule 69(a) provides that proceedings in
aid of execution follow state practice. In this case, those procedures are found
in the Pennsylvania Rules of Civil Procedure 3101-3149.

14

The Pennsylvania rules provide that after a writ of execution is issued, the
judgment holder may serve interrogatories on the garnishee respecting property
possessed by him but owned by the judgment debtor. Pa.R.Civ.P. 3144. "The

procedure between the plaintiff and garnishee shall, as far as practicable, be the
same as though the interrogatories were a complaint and the answer of the
garnishee were an answer in assumpsit." Pa.R.Civ.P. 3145. If the garnishee
fails to file an answer to the interrogatories within 20 days, judgment may be
entered against him in the same amount as the original judgment against the
defendant. Pa.R.Civ.P. 3146.3 It was this state procedure which Union followed
in proceeding against Sun.
15

As noted earlier, service of the garnishment documents was made on Sun in


accordance with the provisions of the Hague Convention. Because Sun has
raised no objection to the method of service, we may take it as being proper.
Sun has also voluntarily submitted to the jurisdiction of the district court.
Therefore we need not inquire whether that court had the power to enter a valid
default judgment on a claim based on an insurance contract entered into in
England between two English concerns, neither of which has offices in the
United States.

16

We look then to the matter of the district court's refusal to open the default
judgment. Sun's motion was filed under Fed.R.Civ.P. 60(b), which provides for
relief from judgments in defined circumstances. Subsection (b)(1) lists as
possible grounds, "mistake, inadvertence, surprise or excusable neglect."
Subsection (b)(6) refers to "any other reason justifying relief from the operation
of the judgment." Relief under (b)(1) requires that the motion be made within
one year from the date of the judgment; motions pursuant to (b)(6) need be
made only within a reasonable time. Since the parties do not dispute the
timeliness of the motion and we find that the motion was filed within both a
reasonable time and the one-year period, it is not necessary to choose between
the two subsections in reaching our decision. See 7 J. Moore & J. Lucas,
Moore's Federal Practice P 60.27(1) at 346 (2nd ed. 1982).

17

Defaults are also treated in Rule 55(c), which authorizes a court to "set aside
the entry of default" for "good cause shown". There is a distinction between a
default standing alone and a default judgment. If a judgment by default has been
entered, it may be set aside "in accordance with Rule 60(b)." Id. Less
substantial grounds may be adequate for setting aside a default than would be
required for opening a judgment. Thus, "(a)ny of the reasons sufficient to
justify the vacation of a default judgment under Rule 60(b) normally will justify
relief from a default entry and in various situations a default entry may be set
aside for reasons that would not be enough to open a default judgment." 10 C.
Wright & A. Miller, Federal Practice and Procedure 2696 at 334 (1973).

18

In Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 245 (3d Cir. 1951),

we said that in passing upon default judgments Rule 60(b) should be "given a
liberal construction.... Any doubt should be resolved in favor of the petition to
set aside the judgment so that cases may be decided on their merits." We
followed that admonition in Livingston Powdered Metals, Inc. v. N.L.R.B., 669
F.2d 133 (3d Cir. 1982), a case involving the entry of a de facto default
judgment by the NLRB against an employer. We also quoted the Tozer
standard in Medunic v. Lederer, 533 F.2d 891, 893-94 (3d Cir. 1976), although
there a default, rather than a default judgment, was challenged.
19

Our most recent foray into the field was Farnese v. Bagnasco, 687 F.2d 761 (3d
Cir. 1982), where again it was a default entry, not a judgment, that was at issue.
Although as we have noted the standards for the two situations are not always
the same, we believe that the three factors discussed in Farnese should be
applied in both situations:

20

1. Whether the plaintiff will be prejudiced;

21

2. Whether the defendant has a meritorious defense; and

22

3. Whether culpable conduct of the defendant led to the default.

23

Farnese, at 764; see also Livingston Powdered Metals, Inc., 669 F.2d at 136;
Tozer, 189 F.2d at 244-45, 246.

24

We consider these points seriatim. Union has not demonstrated any prejudice
that would result from opening the judgment, other than the financial costs
associated with enforcing a judgment later vacated. Delay in realizing
satisfaction on a claim rarely serves to establish the degree of prejudice
sufficient to prevent the opening a default judgment entered at an early stage of
the proceeding. See Tozer, 189 F.2d at 246. In addition, prejudice suffered by a
non-defaulting party can often be rectified through the trial court's power under
Rule 60(b) to impose terms and conditions upon the opening of a judgment. See
Wokan v. Alladin International Inc., 485 F.2d 1232, 1234-35 (3d Cir. 1973); 10
& 11 C. Wright & A. Miller, Federal Practice and Procedure 2700, 2857
(1973).

25

Union has not suggested that its ability to pursue the claim has been hindered
since the entry of the default judgment. It has not asserted loss of available
evidence, increased potential for fraud or collusion, or substantial reliance upon
the judgment to support a finding of prejudice. See Farnese v. Bagnasco, at 764;
General Tire & Rubber Co. v. Olympic Gardens, Inc., 85 F.R.D. 66, 70

(E.D.Pa.1979); Restatement (Second) of Judgments 74 (1982). Since the


record does not support a claim of prejudice justifying denial of relief, we
conclude that the first factor weighs in Sun's favor.
26

Sun has advanced at least one meritorious defense, namely, its contention that
the policy does not cover Reliant with respect to the Feliciano injury. This
argument is supported by the opinion of a barrister at Grays Inn, James Roland
Blake Fox-Andrews, Q.C., based on his review of English law. We, of course,
express no view on the merits of the coverage question but observe that, prima
facie, Sun does have a valid defense.

27

In addition, the liability of Sun depends upon the validity of the default
judgment entered against Reliant. Sun's solicitor wrote that Reliant had never
submitted to American jurisdiction and that the judgment against Reliant was
unenforceable. In deciding not to appear, Reliant acted on the advice of
independent counsel. Since the record before us does not contain such pertinent
information as Reliant's theory for asserting lack of jurisdiction or evidence on
that point, we cannot say that there may not be substance to Sun's position.

28

The third Farnese factor focuses on whether the defendant was culpable, that is,
whether it acted willfully or in bad faith. Union argues that Reliant and Sun had
obligations toward Feliciano that they sought to avoid by ignoring the
proceedings in the American courts. Union concedes that British and American
concepts on "extensions of personal jurisdiction" differ, but says that an
American court should not "require its citizens to adhere to foreign procedures
simply because American procedures differ." Union's Brief at 21, 22. Union's
parochial attitude requires serious reevaluation because it does not aid the
solution of complex problems engendered by international trade, transnational
corporations, and conflicting national interests. As we pointed out in
Mannington Mills, Inc. v. Congoleum Corp., 595 F.2d 1287, 1297 (3d Cir.
1979), eschewing a provincial approach better comports with the realities of
international commerce.

29

A more accommodating approach leads to a different interpretation of Sun's


conduct than that urged by Union. Sun was confronted with an unusual form of
process. Their solicitor said he was "puzzled" by it. We see no reason to
question that statement. It would indeed be unrealistic to expect English
solicitors to be acquainted with the execution process of each of the fifty states.
Not only was the procedure unusual insofar as it concerned the relationship
between a claimant and an insurance company, but the pleadings were in the
form of interrogatories, which generally require an order of court to be effective
in England.4

30

Judgments of United States courts can be enforced only by an action in England


because English law does not provide for their registration.5 In reacting to the
interrogatories, the solicitor adopted what can be characterized as a politely
cautious policy. He did not wish to expose Sun to the jurisdiction of an
American court, but at the same time wished to be cooperative insofar as that
was possible. Hence, he decided upon the device of using a letter to furnish the
requested information rather than answering in the form desired by Union. An
equally cooperative gesture on the part of Union would have been to respond to
the letter instead of seeking the default.6

31

Sun did not exhibit a completely negative and hostile attitude. Although it did
not wish to waive jurisdiction, it did supply the requested information to Union
and to the district court. In sum, we find that Sun's reluctance to take action
which it feared might undermine its jurisdictional position-a question which
might well have substantial merit-does not demonstrate any bad faith on its part
or any disrespect for the district court.

32

In view of Sun's lack of bad faith and its assertion of valid defenses on the
merits, combined with lack of prejudice to Union, the requirements under Rule
60(b) for opening a default judgment are satisfied. We hold that the district
court abused its discretion in refusing to hear the case on the merits.

33

Accordingly, the judgment of the district court will be vacated and the case will
be remanded for further proceedings consistent with this opinion.

The real party in interest is the Liberty Mutual Insurance Company, Union's
liability carrier, which paid the settlement to Feliciano. We refer only to Union
for the sake of simplicity

The subsidiaries are Alliance Assurance Company, Ltd., The London


Assurance, and Sun Insurance Office, Ltd. The Sea Insurance Company, Ltd. is
wholly owned by The London Assurance

Since the time of the entry of judgment against Sun, Rule 3146 has been
amended, effective February 8, 1982. The rule in effect at the time of Sun's
default allowed the entry of judgment in the amount of the original judgment
upon a garnishee's failure to seasonably answer the interrogatories. The
amended rule provides for the entry of judgment, unliquidated in amount,
following a garnishee's failure to file answers to interrogatories within the
requisite time period. The amount is assessed by the court after notice to the
garnishee and a hearing

Tentative Draft No. 3 of the Restatement (Revised) of Foreign Relations of the


United States (March 15, 1982) recognizes that the free wheeling discovery
common in American litigation is disfavored in most foreign countries. Section
420(1)(c) suggests that an American court issuing an order directing the
production of documents or other information located abroad should consider
the importance to the litigation of the documents requested, the specificity of
the request, the extent to which compliance would undermine the important
interests of the country where the information is located, and the possibility of
securing the information through alternative means. The reporters' notes
comment on the friction that discovery orders have generated abroad and the
effect of "blocking statutes" enacted by many foreign countries in retaliation
For a discussion of some of the practical problems and suggestions for
improvement in the relationship between the United States and European
countries on these questions, see A.H. Hermann, Conflicts of National Laws
with International Business Activity: Issues of Extraterritoriality (1982)
(British-North American Committee).

See Pettit & Styles, The International Response to the Extraterritorial


Application of United States Antitrust Laws, 37 Bus.Law. 697, 704 (1982).
Some judgments, such as those for "multiple damages," will not be enforced by
British courts after the passage in 1980 of the Protection of Trading Interest
Act. Id. at 705. See generally, Lowe, Blocking Extraterritorial Jurisdiction: The
British Protection of Trading Interests Act, 1980, 75 Am.J. Int'l L. 257 (1981).
The large awards in products liability cases, as well as treble damages in
antitrust cases have been of particular concern to British courts

"In practice the English courts will try hard to give effect to requests for
evidence emanating from foreign courts. Lord Denning M.R., in giving effect to
letters rogatory in the first reported decision on the 1975 Act (giving effect to
the Convention on Taking Evidence Abroad, 23 U.S.T. 2555), applied the
principle of comity: 'It is our duty and our pleasure to do all we can to assist
that court, just as we would expect the United States court to assist us in like
circumstances.' " Pettit & Styles, supra note 5, at 701. Unfortunately, Lord
Denning's cooperative attitude was not reflected in the subsequent review of the
matter in the House of Lords. Id

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